Cochrane v Clark
[2005] NZCA 17
•24 February 2005
IN THE COURT OF APPEAL OF NEW ZEALAND
CA66/04
BETWEENSUSAN MAREE COCHRANE
Appellant
ANDERIC CLIFFORD CLARK AND NAOMI ELIZABETH CLARK
Respondents
Hearing:7 September 2004
Court:Anderson P, Glazebrook and William Young JJ
Counsel:G P Denholm for Appellant
C R Pidgeon QC for Respondents
Judgment:24 February 2005
JUDGMENT OF THE COURT
The appeal is dismissed. Leave to cross-appeal is granted to Mr and Mrs Clark. On their cross-appeal, the award of damages against them, in the sum of $15,000, is set aside. Ms Cochrane is to pay Mr and Mrs Clark $6,000 together with disbursements (including the travel and accommodation expenses of counsel if any) to be agreed between the parties and, in default of agreement, fixed by the Registrar.
REASONS
(Given by William Young J)
Table of Contents
Para No
Introduction [1]
The background facts [4]
Overview of the appeal [23]THE CONSEQUENCES OF AN ADMITTED MISREPRESENTATION
as to ownership of some of the property
The issue [24]
The approach of Miller J [29]
The argument on behalf of Ms Cochrane [31]
The argument on behalf of Mr and Mrs Clark [32]
Evaluation [33]
Alleged breaches of a covenant as to fertiliser
The issue [47]
The approach of Miller J [54]
The argument on behalf of Ms Cochrane [55]
The argument on behalf of Mr and Mrs Clark [56]
Evaluation [57]
ALLEGED BREACHES OF COVENANT AS TO THE QUALITY OF THE
COWSHED AND MILKING PLANTThe issue [61]
The approach of Miller J [65]
The argument on behalf of Ms Cochrane [66]
The argument on behalf of Mr and Mrs Clark [67]
Evaluation [68]
Access to Kumi Road
The issue [71]
The approach of Miller J [73]
The argument on behalf of Ms Cochrane [74]
The argument on behalf of Mr and Mrs Clark [75]
Evaluation [76]
Mr and Mrs Clark’s entitlements under clause 14
The issue [78]
The approach of Miller J [81]
The argument on behalf of Ms Cochrane [82]
The argument on behalf of Mr and Mrs Clark [83]
Evaluation [84]
Disposition [88]
APPENDIX I: DP 121330
APPENDIX II: DP 130306Introduction
[1] On 17 October 2001, the appellant, Susan Maree Cochrane, agreed to purchase a dairy farm at Awanui, near Kaitaia, from the respondents, Eric Clifford Clark and Naomi Elizabeth Clark. Ms Cochrane later took proceedings in the High Court at Auckland alleging misrepresentation and contractual breaches associated with the sale and purchase agreement. Mr and Mrs Clark counterclaimed.
[2] On 4 March 2004, Miller J gave judgment on these proceedings. Mr and Mrs Clark were largely (although not completely) successful in the litigation.
[3] Ms Cochrane now appeals.
The background facts
[4] The farm has access from Kumi Road, Awanui and borders an estuary. There is a 20m strip of Crown reserve above the high-tide mark on the farm’s seaward boundary. The farm consists of 150.765 hectares (or approximately 371 acres) and is in six titles.
[5] Mr and Mrs Clark were dairy farmers and had used the farm for dairying purposes. In the mid-1990s they entered into a sharemilking arrangement with a Mr Hammerton.
[6] In 2001 Mr and Mrs Clark put the farm on the market. The real estate agent was First National Real Estate Ltd (“First National”). By this time, Mr and Mrs Clark had not farmed the property for some six years.
[7] The flyer for the proposed sale referred to a farm of 400 acres of which 360 acres were said to be “usable”. The language of the flyer resulted from a mistake on the part of the real estate agent as Mr Clark intended to refer to a farm of 360 acres and a usable area of 400 acres. We will explain later why he sought to make a claim in such paradoxical terms.
[8] It is necessary at this point to say something about the titles.
[9] All but 6.461 hectares of the farm had originally formed part of DP 121330. DP 121330 is reproduced in Appendix I.
[10] In 1988, lot 1 of DP 121330 was subdivided pursuant to DP 130306 which created two lots, with the main farm house being on lot 1 and the balance of the old lot 1 of DP 121330 becoming lot 2. DP 130306 is reproduced in Appendix II.
[11] On 11 August 2001, Ms Cochrane, her husband Mr Alan Titford and Mr Des Smeath, a real estate salesman associated with First National, visited the property. On the same day, they submitted a conditional offer for the property. The proposed purchase price was $825,000.
[12] The first offer referred to DP 130306 and provided for a transfer to Ms Cochrane of lot 2. So whoever drafted the offer must have appreciated that lot 1 of DP 121330 had been subdivided. But, confusingly, the special conditions referred to Mr and Mrs Clark having the right “to subdivide from the property the principal house and up to 2 hectares of land” with an abatement of price of $100,000 if this option was exercised. In this respect the drafting of the offer faltered badly. The land to be transferred under the offer (had it been accepted) would not have included the principal house (which was on lot 1 of DP 130306). So the abatement clause could not have been applied in accordance with its tenor.
[13] Mr and Mrs Clark rejected this offer.
[14] The property was again put on the market a few months later.
[15] On 8 October 2001, Ms Cochrane, Mr Titford, two First National sales people, Mr Smeath and a Ms Anne Baker, and a Mr Greville McCullough visited the farm. Mr McCullough is a real estate agent and an experienced dairy farmer. He was acting on behalf of Ms Cochrane.
[16] There was a meeting in Mr and Mrs Clark’s home and an inspection of the farm. At the meeting DP 121330 was inspected. Those present do not appear to have recognised that lot 1 of DP 121330 had been subdivided.
[17] Subsequently, on 17 October 2001, Ms Cochrane made a written offer for the farm. This again referred to lot 2 but not lot 1 of DP 130306. The price initially offered was $855,000. The parties finally agreed at $860,000.
[18] Clause 14 of the agreement is in these terms:
The Vendor may at their own cost subdivide from the property the main farm home and 2.5 ha of land being Part of Lot 2 DP 130306. The residue of this title to be joined to Lot 2 DP 121330. …
[19] Again there appears to have been confusion on the part of whoever drafted the agreement. There was no occasion to subdivide from the property covered by the agreement “the main farm home” as it is on lot 1 of DP 130306 and thus is not subject to the agreement.
[20] Difficulties developed between the parties.
[21] Settlement occurred at the end of the milking season in May 2002. The entire property was transferred to Ms Cochrane as the disputes which had developed came to encompass the extent of the land which was to be retained by Mr and Mrs Clark. This transfer was on terms which provided for Mr and Mrs Clark to be entitled to insist upon a transfer back of whatever they were entitled to under clause 14 of the agreement.
[22] Ms Cochrane then brought proceedings for misrepresentation and breach of contract and Mr and Mrs Clark counter-claimed for what they allege are their entitlements in relation to clause 14.
Overview of the appeal
[23] Some of the issues which were argued in front of Miller J are no longer pursued. Five remain alive. We will discuss them in this judgment under the following headings:
(a)The consequences of an admitted misrepresentation as to ownership of some of the property.
(b) Alleged breaches of a covenant as to fertiliser.
(c)Alleged breaches of covenant as to the quality of the cowshed and milking plant.
(d) Access to Kumi Road.
(e) Mr and Mrs Clark’s entitlements under clause 14.
The consequences of an admitted misrepresentation as to ownership of some of the property
The issue
[24] Mr Clark was under the mistaken impression that two areas of land which he and his wife owned were owned by the Crown. For ease of reference we will refer to these two areas as “the supposed Crown land”. The supposed Crown land lies between two stop banks and is in the general vicinity of the areas of land noted as 13 and 18 on DP 121330 (Appendix I). Mr Clark was not precise in his own mind as to whether all, or only some, of the land between the stop banks was Crown land. It appears that he considered that there were some 40 usable acres in this category. There was no specific evidence as to the areas of the supposed Crown land. For the purposes of this judgment we will treat the supposed Crown land as containing around 16 hectares of usable land.
[25] If the supposed Crown land had really been owned by the Crown, Mr and Mrs Clark would nonetheless have had the de facto ability to use it for farming purposes. This is why Mr Clark had intended the real estate flyer to refer to a usable area of 400 acres but a farm area of only 360 acres. The arithmetic implicit in this suggests to us that Mr Clark considered that the supposed Crown land comprised approximately 40 acres.
[26] It was common ground at trial that on 8 October 2001, Mr Clark had shared his belief as to title to this land (ie that at least some of the land between the two stop banks was Crown land) with Mr Titford. Later Mr Titford and Ms Cochrane and others had inspected this land and had formed an estimate of the area it contained. So it was accepted by Mr and Mrs Clark at trial that Mr Clark had misrepresented the ownership of the land in question in that he had told Mr Titford that land which he and Mrs Clark owned belonged to the Crown.
[27] The Judge found that this misrepresentation was material to the decision made by Ms Cochrane to purchase the farm. This finding was not challenged on appeal by Mr and Mrs Clark.
[28] At trial the approach of Ms Cochrane to damages was along these lines:
(a)She believed that if she bought the farm she would be able to milk off the supposed Crown land, meaning that the usable area of the farm she was acquiring would be 360 acres plus the acreage of the land thought to be owned by the Crown.
(b)As a result she increased what she was prepared to pay for the farm by $135,000. She arrived at this figure by treating the value of the principal house and surrounding land at $100,000 which she deducted from the $825,000 originally offered (in August 2001) producing a net figure of $725,000 as compared to the ultimate sale price of $860,000.
(c)Accordingly she was entitled to $135,000 by way of damages.
The approach of Miller J
[29] In his judgment, Miller J rejected the primary argument advanced by Ms Cochrane in this way:
[78] The plaintiff sought to persuade me that the measure of her damages was $135,000, which was said to be the amount by which the contract price of $860,000 differed from her first offer. The first offer was in fact $825,000, but the plaintiff contended that the contract finally entered into excluded the main house and 2.5 hectares of land, which the parties valued at $100,000.
[79] I reject this approach. It overlooks the fact that the first offer did include provision for the vendors to retain the main house and 2 hectares of land. Further, Mr Pidgeon pointed out that the contract also included the vendor’s shares in Kiwi Dairy Company, which the parties valued at $86,000. Lastly, the Clarks rejected the first offer and I accept their evidence that they would not have sold at $825,000 on the second occasion.
[30] Miller J nonetheless awarded damages relying on evidence which he himself extracted from a valuer who had been called as a witness for Mr and Mrs Clark:
[81] Mr Garton’s view was that the land between the stopbanks would, with development, be capable of producing 7,000 kg of milk solids per season. In its present state, which is very similar to its condition at the time the contract was entered into, it has minimal productive value. When asked to assume, hypothetically, the value of that area of land if added, as a fee simple estate, to 150 hectares being sold pursuant to the contract, he said he would value land of this quality at $2,750 per hectare. Mr Garton also noted that in the 2001-2002 season, the payout for milk solids was $5.30 per kg, which would give a gross income of $37,100 on 7,000kg. Of that, around 20% or $7,420 would be the farmer’s profit.
[82] However, when asked to change the assumptions so that the land between the stopbanks was not fee simple, but rather Crown land which the plaintiff would have the ability, but not the right, to use, Mr Garton’s view was that he would attach no value to the land. He explained it is commonplace for farmers to graze road reserves or similar areas, and the market does not attach a value to the ability to do so. He conceded that vendors sometimes do attempt to attribute a value to it, and that some allowance might be made, but his view was that it would be minimal. He observed that there are many ways of increasing production and in this instance the production coming from the land between the stopbanks is minimal.
[83] In my judgment, the plaintiff and the defendants did attach some value to the ability to use what was thought to be Crown land. I accept that the value that can be attached to that ability must be substantially discounted from the value of a fee simple interest in the same land, because the price paid for a fee simple interest reflects the right to earn an income from the land over an indefinite period.
[84] Using Mr Garton’s figures, a fee simple interest in 40 acres of this land would have been valued at approximately $44,000. …
…
[86] Having regard to Mr Garton’s evidence that the value of the ability to graze the land as Crown land was minimal, and to my assessment of the importance attached to it by the parties, I have concluded that a value of $15,000 ought to be attached to the ability to use that area of land. That is close to half of the sum by which the plaintiff increased her offer to buy the farm. The plaintiff will have judgment for that sum.
The argument on behalf of Ms Cochrane
[31] For the appellant Mr Denholm maintained the assertion that Ms Cochrane had effectively increased her offer price by $135,000. Further, he argued that the loss of income associated with the supposed Crown land was appreciable and that the award of damages was simply too low.
The argument on behalf of Mr and Mrs Clark
[32] Mr Pidgeon QC, for Mr and Mrs Clark, sought to maintain the reasoning of Miller J.
Evaluation
[33] The primary contention of Ms Cochrane at trial was that she had increased her offer by $135,000 because she believed that she was acquiring a de facto right to graze the supposed Crown land as well as the approximately 148 hectares which she was buying.
[34] To use the language which is conventionally employed in this context (although not by counsel in their arguments in this case), Ms Cochrane was seeking damages on a reliance or detriment basis.
[35] Ms Cochrane invoked both the Contractual Remedies Act 1979 and the Fair Trading Act 1986. Under s 6 of the Contractual Remedies Act, damages for misrepresentation are recoverable as if the representation were a term of the contract that had been broken. It is trite that such damages are usually assessed on an expectations basis, see for instance New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 at 596 per Barker J.
[36] Assuming that Mr and Mrs Clark were acting “in trade” when they sold the farm, a claim for damages/compensation under the Fair Trading Act 1986 would be available and such damages would, of course, be assessed on a detriment or reliance basis. The issue whether Mr and Mrs Clark were acting “in trade” is not entirely easy, see for instance Undrill v Senior (High Court, Blenheim, CP9/94, 20 August 1997), and Sunnylea Farms Ltd v Fray (2004) 21 NZTC 18,667. For the moment, we are inclined to the view that Mr and Mrs Clark were “in trade”. On that footing, the detriment/reliance approach to damages advanced by Ms Cochrane was, at least theoretically, open.
[37] Miller J rejected Ms Cochrane’s reliance/detriment damages case at [79] of his judgment. He gave three grounds for this rejection.
[38] The first was arithmetical. Miller J thought that the increase between the first offer and the sale price was $35,000. Strictly speaking, Miller J was probably correct as the drafting blunder in the original offer meant that Mr and Mrs Clark would probably not have exercised the “option” conferred under the offer given that the farm house property was not the subject of the sale. But Ms Cochrane was not aware of that blunder. So at least in her own mind she was making an offer which in substance was $135,000 more than she had previously offered for the property. Whatever other defects may have been associated with this head of Ms Cochrane’s claim, we are prepared to assess it on the basis that her arithmetic at least was sound.
[39] The second of the reasons given by Miller J in [79] related to the value of the dairy company shares. We do not see the relevance of this point. Both the August and the October offers included the dairy company shares.
[40] The last of the reasons given by Miller J, however, does seem to us to be sound. There is no reason to suppose that Mr and Mrs Clark would ever have sold the property for $825,000, a price which they had already rejected. Indeed, they rejected an offer of $855,000 from Ms Cochrane. Therefore there is no basis upon which it could fairly be concluded that they would have been prepared to accept anything appreciably less than $860,000 for the farm. This seems to us to be a decisive consideration as far as the reliance/detriment approach to damages was concerned.
[41] Accordingly, on the case as primarily advanced by Ms Cochrane, the claim for damages in relation to this head of loss fails.
[42] In his approach to damages, the Judge would appear to have set out to compensate Ms Cochrane for her disappointed expectations, an entirely orthodox approach to damages for misrepresentation under the Contractual Remedies Act.
[43] Whether Ms Cochrane was worse off with the position as it was rather than as it had been represented is open to question. On the one hand, the land area which can practicably be used is 16 hectares less than Ms Cochrane might have understood was going to be the case. On the other, under the transaction she obtained title to all the land which she regarded as being usable whereas, had the representation been true, 16 hectares of that land would have been in Crown ownership. She could hardly have sensibly factored in the possibility of additional production because she must be taken to have known that Mr and Mrs Clark and their sharemilker had been using the supposed Crown land.
[44] Given that the damages case as presented on behalf of Ms Cochrane failed, the Judge may have been better to have dismissed the claim rather than reformulate it on the basis of answers given by Mr Garton to his questions. The Judge granted damages for loss of ability to use the supposed Crown land when in fact Ms Cochrane not only has the ability to use that land but also the right, given that she now owns it. Further, for the reasons already given, it is not appropriate to make any sort of allowance for additional production as Mr and Mrs Clark and their sharemilker had been using the supposed Crown land.
[45] That Ms Cochrane placed a value in her own mind on the ability to utilise the supposed Crown land does not seem to us to be the controlling consideration. The ultimate question was whether the value of what she acquired was less than the value of what, based on the representations made by Mr and Mrs Clark, she understood she was acquiring. There was no evidence specifically addressed to that issue. As is apparent from what we have said in [43], it is far from self-evident that the value of what Ms Cochrane acquired was less than the value of what had been represented, cf Walsh v Kerr [1989] 1 NZLR 491 (CA).
[46] In the course of the hearing Mr Pidgeon applied for leave to cross-appeal in relation to the award of $15,000. We grant leave and allow the cross-appeal. So the award of $15,000 is set aside.
Alleged breaches of a covenant as to fertiliser
The issue
[47] The agreement for sale and purchase provides:
17.6The Vendor warrants that fertiliser will be applied as per lease agreement (300 tonnes of lime, 56 tonnes of potash). Such amount to be adjusted by using a current soil test as advised to at least maintain present levels of productivity. Proof of application to be supplied prior to take-over.
[48] The lease in question was between Mr and Mrs Clark and their sharemilker. That document provided:
The lessee shall supply and apply a base rate of 300 tonnes of lime, and 56 tonnes of potash. To be adjusted using a current soil test, in consultation with the owners, sufficient to be supplied to at least maintain present levels as on soil test report, prior to this agreement, already seen by lessee.
[49] In practice the requirement under the lease to apply potash and lime was treated as a dead letter. There is no evidence to suggest that the farm was in need of potash. Further, the areas of the farm which were actively grazed were if anything too alkaline and thus had no need of lime. Rough areas of the farm would have benefited from lime but there is no evidence to suggest that application of lime to those areas was necessary for the maintenance of existing production.
[50] The understanding between Mr Clark and the sharemilker was that fertiliser would be applied in accordance with the recommendations of Summit-Quinphos NZ Ltd and that the shortfall between the cost of implementing those recommendations and applying the fertiliser stipulated for by the lease would be made up by the sharemilker carrying out drainage work.
[51] No soil test was carried out in the 12 months preceding settlement.
[52] In the 2001/2002 year, Summit-Quinphos had recommended the application of 33 tonnes of fertiliser (none of which was either potash or lime). Of this, the sharemilker applied only 16 tonnes. Mr and Mrs Clark on settlement accepted a $9,559 abatement in price in respect of the missing 17 tonnes.
[53] The case presented on behalf of Ms Cochrane at trial appears to have been along these lines:
(a)At the date of settlement the farm was much in need of fertiliser, superphosphate in relation to the principal grazing areas and lime and superphospate for the poorer rush-covered areas of the farm. The cost of meeting this fertiliser deficiency was $59,070.12.
(b)The total cost of applying potash and lime as stipulated in the contract would have been $63,685. Allowing for the cost of the fertiliser applied by the sharemilker ($6,256) and the credit allowed on settlement ($9,559), the total “spent” was $15,818, leaving a “deficiency” of $47,870.
(c)Accordingly she was entitled to damages of $47,870.
The approach of Miller J
[54] Miller J approached this aspect of the case in this way:
[40] I was not provided with the soil tests referred to in the lease, and I find that no current soil test was supplied by the vendors prior to settlement. Mr Pidgeon sought to rely on a soil test dated 7 September 2000, but the obligation to supply fertiliser is an annual one. It follows that a soil test cannot be current unless it relates to the year in which the obligation to apply fertiliser arises.
[41] It is plain that the adjustment referred to in the agreement for sale and purchase was to relate to present levels of productivity. Making an allowance in favour of the plaintiff in the absence of a current soil test, I conclude that the present level of productivity ought to be taken as 43,000 kg of milk solids per season. I use this figure because it was common ground that the farm had achieved up to 43,000 kg in recent years. Mrs Clark’s evidence was that the sharemilker had targeted 43,000 kg as his annual production.
[42] I was supplied with several recommendations that had been made by Summit-Quinphos (NZ) Limited over the years. It was apparent from these recommendations that, Summit-Quinphos had not recommended application of lime because pH levels and soil acidity were already too high on much of the farm. Mr Titford also explained that potash was undesirable as it tends to burn off the grass. It appears that in practice the sharemilker had followed Summit-Quinphos recommendations to apply much lower levels of mixed fertiliser (being neither lime or potash).
[43] In the 2001/2002 season, it appears that Summit-Quinphos recommended that 33 tonnes of fertiliser be applied. In fact only 16 tonnes were applied. Based on the price for the fertiliser that was applied, a credit of $9,559 was given on settlement to reflect the missing 17 tonnes.
[44] The plaintiff relied on a Summit-Quinphos report dated 31 May 2002 which was prepared for the plaintiff. Based on assumed production of 65,000 kg of milk solids, Summit-Quinphos offered recommendations for three areas of the farm being night paddocks, day paddocks and the less developed rushes area. Consistent with the firm’s previous recommendations, Summit-Quinphos did not recommend application of lime on the day or night areas. Fertiliser (not potash) was recommended on the night and day areas to achieve the higher 65,000 kg production level. However, lime was suggested at 3 tonnes per hectare on the rushes area which includes the level previously thought to be owned by the Crown. On this basis, the plaintiff sought to persuade me that the defendants were obliged to pay damages based on 3 tonnes per hectare of lime on the rushes area (up to 300 tonnes) together with 56 tonnes of fertiliser (not potash), less the fertiliser previously applied by the sharemilker and the credit had been given on settlement.
[45] However, I consider that the fertiliser applied, together with the credit on settlement, met the previous Summit-Quinphos recommendation relating to the 2001/2002 season. … .
[46] Lastly, I consider that the plaintiff was in error to point to the fact that the rushes area could use lime. The question is not whether a particular area of the farm was capable of absorbing lime, but whether lime was needed to ensure that the farm as a whole maintained the previous levels of productivity. If it could do so without liming the rushes area, then there was no obligation to apply lime, let alone at levels designed to achieve much higher production.
The argument on behalf of Ms Cochrane
[55] In this Court Mr Denholm maintained the argument which was advanced at trial on behalf of Ms Cochrane.
The argument on behalf of Mr and Mrs Clark
[56] Mr Pidgeon largely adopted the approach taken by the Judge.
Evaluation
[57] Mr and Mrs Clark were in breach of clause 17 because they did not supply a current soil test. In the absence of a current soil test, the contract required them to apply potash and lime. Their failure to apply potash and lime is of comparatively little moment because the main grazing areas of the farm required neither potash nor lime. While the poorer areas of the farm would have benefited from lime application, there is no evidence that this was required to maintain current production levels. There was no evidence to show any diminution in the value of the farm associated with the non-application of lime to the poorer areas of the farm.
[58] A more realistic approach to the issue is to look at what would have been the outcome had a soil test been carried out, recommendations based on that soil made as to the fertiliser required to maintain existing production levels, and if Mr and Mrs Clark had implemented those recommendations. For Ms Cochrane to prove that she had suffered a loss, she would have to show that maintenance of current production required fertiliser application in excess of what Mr and Mrs Clark conceded at the time of settlement.
[59] On this approach, Ms Cochrane was short of evidence. The assessment which she relied on of what fertiliser ought to be applied to the farm was based on the aim of achieving annual production of 65,000 kilograms of milk solids, appreciably more than the existing production levels referred to in the contract. So this assessment cannot fairly be regarded as a surrogate for the recommendations contemplated under the contract.
[60] In those circumstances, we see no evidential basis for assessing damages based on fertiliser applications which are more exacting than those recommended by the Summit-Quinphos.
Alleged breaches of covenant as to the quality of the cowshed and milking plant
The issue
[61] The agreement for sale and purchase provided:
The Vendor warrants that the tanker road, cow shed, milking plant, vat units are all up to supply standard as set down by the Dairy Company. A full inspection to be carried out by the Dairy Inspector and any defects will be corrected by the Vendor prior to takeover. A full inspection report to be supplied prior to settlement.
[62] On 13 May 2002, a Kiwi Dairies inspector inspected the plant. He provided a report which recorded that the plant was “approved to supply milk”. The report specifically excluded “rubberware”.
[63] On 30 May 2002, a report was obtained by the sharemilker from Apex Plumbers Ltd. This report was prepared for the sharemilker pursuant to an obligation contained in the lease of the farm to the sharemilker dated 5 February 1999. This report was volunteered by Mr and Mrs Clark to Ms Cochrane. This report lists many defects in the plant
[64] At trial Ms Cochrane sought damages from Mr and Mrs Clark based on the cost of remedying the defects identified by Apex Plumbing.
The approach of Miller J
[65] Miller J dismissed this aspect of the claim in this way:
[53] There is no merit in the plaintiff's claim. The last sentence of clause 17.4 clearly refers to the report by the dairy inspector employed by Kiwi Dairies. If the plaintiff is correct and a second report is required, then the agreement contains no obligation associated with the report.
[54] I observe that it would be surprising if the defendants were to accept an obligation to bring the shed up to a standard satisfactory to Apex Plumbers. It is plain that the milking equipment was in run down condition, although it was still adequate to supply milk to the dairy company, and this was noted by Mr McCullough when the property was inspected by the plaintiff. I have no doubt that the condition of the plant, as with the condition of the farm generally, was reflected in the price that the plaintiff was prepared to pay.
The argument on behalf of Ms Cochrane
[66] Mr Denholm sought to argue that the relevant report was that provided by Apex Plumbers and he claimed that the report of the Kiwi dairy inspector was not a “full inspection report”. He submitted that Apex Plumbers was the approved agent for Kiwi Dairies and thus the report which it provided should be treated as part of “the full inspection report” to be supplied by Mr and Mrs Clark prior to settlement.
The argument on behalf of Mr and Mrs Clark
[67] Mr Pidgeon supported the Judge’s reasoning.
Evaluation
[68] Clause 17.4 refers to a “full inspection” and the supply before settlement of a “full inspection report”. The report supplied by the Kiwi Dairies inspector was in standard and succinct form. For this reason, and given the “rubberware” exclusion, it did not meet the requirements of clause 17.4.
[69] Again, a sensible approach is necessary. The key element of the clause is the warranty that the plant was up to “supply standard”. The plant (which Ms Cochrane and her advisers had inspected) no doubt was run-down. But there is no evidence that it was not up to supply standard. Indeed the evidence is to the contrary as milk from the plant was accepted prior to and after settlement.
[70] Accordingly, this aspect of the appeal fails.
Access to Kumi Road
The issue
[71] Ms Cochrane alleged that Mr and Mrs Clark had warranted that the farm had “direct simple access” to Kumi Road. This representation was said to be untrue in that only a right of way access to the farm is available from Kumi Road.
[72] There was no provision to this effect in the contract and Ms Cochrane relied upon s 6 of the Contractual Remedies Act, and in the alternative, the Fair TradingAct. In large measure her case depended on the evidence of Mr Titford that such a representation was made.
The approach of Miller J
[73] Miller J rejected the evidence of Mr Titford on this issue.
The argument on behalf of Ms Cochrane
[74] Mr Denholm’s argument very much depended on the confusion over the subdivision of lot 1 of DP 121330. It is common ground that at the meeting on 8 October 2001 DP 121330 was examined. The scale of the copy of DP 121330 which was examined is such that the position of the right of way, which now provides access to the farm, is unclear. Further, as we have already said, the terms of the contract of 17 October 2001 and indeed the earlier offer of August 2001 evidence considerable confusion.
The argument on behalf of Mr and Mrs Clark
[75] Mr Pidgeon noted the absence of any evidence supporting the claim by Mr Titford of representation as to legal access.
Evaluation
[76] We are against Ms Cochrane on this aspect of the case.
[77] She (via Mr Titford) must be taken to have known that Mr and Mrs Clark were to retain the land at the Kumi Road end of what had been lot 1 of DP 121330. Mr Titford’s evidence that the position was misrepresented to him was rejected by the Judge. If Mr Titford believed the balance of the farm had direct access, rather than via a right of way, to Kumi Road, this must therefore have been a function of his misinterpretation of DP 121330 (which in fact shows a right of way) and is not the responsibility of Mr and Mrs Clark.
Mr and Mrs Clark’s entitlements under clause 14
The issue
[78] We have already referred to the incongruity between clause 14 of the 17 October 2001 agreement and the fact that the agreement did not apply to lot 1 of DP 130306.
[79] This makes for some difficulty in giving effect to clause 14.
[80] There are two possible interpretations of clause 14:
(a)Mr and Mrs Clark retain lot 1 of DP 130306 and may subdivide off from lot 2 of DP 130306 2.5 hectares of land; or
(b)Mr and Mrs Clark retain lot 1 of DP 130306 and may subdivide off from lot 2 of DP 130306 approximately 2.3 hectares of land (being 2.5 hectares less the area of lot 1 which consists of approximately 2,000 m2).
The approach of Miller J
[81] Miller J recognised the awkwardness of the language used but took the approach that the first of the two possible interpretations to which we have referred should be adopted.
The argument on behalf of Ms Cochrane
[82] Mr Denholm did not treat the issue as one of interpretation but rather misrepresentation. He claimed that the conduct of Mr Clark amounted to representation that lot 1 of DP 121330 had not been subdivided.
The argument on behalf of Mr and Mrs Clark
[83] Mr Pidgeon noted that the agreement correctly refers to the titles. He accepts that the reference to the home in clause 14 was unnecessary but he maintains that the agreement means that 2.5 hectares is to be subdivided from lot 2 of DP 130306.
Evaluation
[84] Contrary to the way in which Mr Denholm argued this aspect of the case, we see no relevant misrepresentation. The drafting of the agreement proceeds on the basis that lot 1 DP 121330 had been subdivided; this given the references in the agreement to DP 130306.
[85] At no stage has any attempt been made by either party to rely on the Contractual Mistakes Act. Nor has either party sought rectification. Accordingly, we leave on one side possible arguments as to mistake and rectification.
[86] The underlying interpretation issue, although not argued by Mr Denholm, is closely balanced. The confusion which affected the mind of whoever drafted the agreement makes it difficult to attribute a contractual intention to the parties.
[87] In those circumstances we think it best to give effect to the words of the agreement. We think that they, on their most natural interpretation, are more in accord with the meaning attributed to them by Miller J than the second of the two interpretations referred to in [80] above.
Disposition
[88] The appeal is dismissed. Leave to cross-appeal is granted to Mr and Mrs Clark. On their cross-appeal, the award of damages against them, in the sum of $15,000, is set aside.
[89] Ms Cochrane is to pay Mr and Mrs Clark $6,000 by way of costs together with disbursements (including the reasonable travel and accommodation expenses of counsel) to be agreed and in default of agreement fixed by the Registrar.
Solicitors:
Foy & Halse, Auckland for Appellant
Clive Patterson, Kaitaia for RespondentsAPPENDIX I: DP 121330
Appendix II: DP 130306
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